Global banks are significantly reducing their exposure to spot cryptocurrencies, shifting their focus to more regulated exchange-traded products (ETPs), according to fresh data from the Basel Committee on Banking Supervision (BCBS). The move signals a growing preference for traditional financial instruments over direct crypto holdings as regulatory pressure mounts.Key Highlights:$368.3 billion in crypto assets were under custody by 29 banks in Q2 2024.Only 2.46% of bank holdings were in spot crypto — down sharply from prior years.92.5% of crypto holdings now come via regulated exchange-traded products (ETPs).The shift follows 2023’s banking turmoil, including the collapse of Signature and Silicon Valley Bank.From Crypto Custody to ETP DominanceAs of June 2024, 29 global banks were responsible for the reported €341.5 billion ($368.3 billion) in crypto asset custody. However, the vast majority of these holdings were not in actual cryptocurrencies, but in exchange-traded products (ETPs) — funds that track the price of crypto assets and are considered safer under existing regulatory frameworks.The Basel Committee, which sets international banking standards, reported that just 2.46% of these holdings were in spot crypto assets, with the remaining over 92% in ETPs. This marks a sharp decline in spot exposure — down more than 44% since 2021.Why the Shift?The decline in direct crypto holdings aligns with a December 2022 BCBS recommendation that banks should limit spot crypto exposure to below 2% of their total assets. The move also comes in the wake of banking failures tied to crypto exposure in 2023, prompting regulators to scrutinize financial institutions more closely.Banks are reacting by reducing risk, moving toward regulated, transparent instruments like Bitcoin and Ethereum ETPs, many of which have gained approval across the U.S. and Europe over the past year.Global Financial Oversight TightensThe BCBS’s survey, involving 176 banks (115 internationally active), reflects a broader global trend: financial institutions are minimizing direct crypto interaction while still offering exposure to digital assets via regulated channels.This shift mirrors moves by traditional asset managers and pension funds that are increasingly favoring spot Bitcoin ETFs and structured crypto offerings, particularly as regulatory clarity improves in key jurisdictions.What It Means for Crypto MarketsWhile banks are pulling away from spot crypto, the surge in ETP adoption could enhance institutional involvement and boost market legitimacy. This trend also underlines the growing divide between decentralized finance (DeFi) and regulated TradFi adoption paths.The future of crypto in traditional finance appears to rest on compliant infrastructure and regulated access points — with banks playing a backseat role to funds, ETFs, and custodians, according to CoinDesk.
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